The ATO Is Cracking Down: How to Avoid Tax Audits in 2025

Introduction

The Australian Taxation Office (ATO) has ramped up its audit activities, targeting rental property owners, small businesses, and individuals claiming deductions. With advanced data-matching technology and stricter compliance regulations, the ATO is closely reviewing tax returns to detect errors, overclaims, and undeclared income.

A tax audit can be stressful, time-consuming, and costly if you’re found to be non-compliant. To help you stay audit-proof and ensure compliance, here’s what you need to know about common audit triggers and how to avoid them.

Common ATO Audit Triggers & How to Avoid Them

🚨 1. Claiming Excessive Work Deductions

While you’re entitled to claim work-related expenses, the ATO closely examines returns where deductions seem too high compared to income levels.

✔ Keep receipts and proof for every deduction you claim.
✔ Ensure expenses are directly related to your income-producing activity.
✔ Avoid claiming personal expenses as work-related deductions.
✔ If working from home, use the correct method for calculating deductions (fixed rate vs. actual cost method).

🚨 2. Under-Reporting Income

The ATO uses sophisticated data-matching technology to track undeclared income across bank records, property transactions, cryptocurrency, and third-party reporting from employers, banks, and online platforms.

✔ Always declare all sources of income, including rental income, dividends, and gig economy earnings.
✔ If you earn money from side gigs or freelancing, ensure your ABN is registered and income is properly reported.
✔ Cryptocurrency investors must report all capital gains and losses accurately.
✔ Airbnb hosts and e-commerce sellers need to declare rental and online sales income.

🚨 3. Incorrect GST & BAS Lodgements

Small businesses registered for GST must ensure accuracy in their Business Activity Statements (BAS). The ATO regularly audits businesses for incorrect GST claims and underreported sales.

✔ Double-check GST input tax credits before claiming refunds.
✔ Keep accurate and organized business records for GST lodgement.
✔ Ensure all BAS statements are submitted on time to avoid penalties.
✔ Register for GST if your turnover exceeds $75,000 per year (for most businesses).

🚨 4. Rental Property Deductions

The ATO is actively reviewing tax claims from property investors due to errors in rental property deductions. Many landlords unknowingly claim ineligible expenses, leading to audits.

✔ Only claim expenses related to income-producing properties.
✔ Ensure deductions such as interest on loans, council rates, and maintenance costs are legitimate.
✔ Keep detailed records of rental income and expenses.
✔ If your property was vacant for part of the year, you may need to adjust deductions accordingly.
✔ Capital improvements cannot be claimed as an immediate deduction—they must be depreciated over time.

How to Stay Audit-Proof

✅ Keep detailed financial records for at least five years.
✅ Ensure all claims are accurate, reasonable, and supported by documentation.
✅ Stay informed about ATO regulation changes and tax compliance rules.
✅ Seek guidance from experienced tax professionals to ensure error-free tax returns.

📢 Worried about an audit? Let BookBrite Advisors help you stay compliant and stress-free!